British pound wobbles on Boris Johnson victory

The pound bounced briefly higher Tuesday before falling back again after arch-Brexiteer Boris Johnson was announced as Britain’s next prime minister.

Johnson, who has vowed to take Britain out of the European Union on the October 31 deadline with or without a deal, defeated Jeremy Hunt in the race to become Conservative Party leader.

Markets had widely expected the results and the pound got a brief boost once they were announced before slipping lower again to $1.24 in afternoon London trade.

“Given that he’s been the frontrunner for quite some time the immediate market reaction has been fairly quiet with the pound remaining under pressure and not far from its lowest level since April 2017 against the US dollar,” noted David Cheetham, chief market analyst at XTB online brokerage.

“The fate of the new PM’s tenure and of the pound for the coming months will be almost solely determined by Brexit developments but in the coming days it would not be too surprising to see some sort of relief rally now that the news is out,” he added.

“The question now is whether the pound can recover from its slump in the near-term or whether the risk of no-deal is just too great and every passing week is seen to take us one week closer to the cliff-edge,” said analyst Craig Erlam at currency trading brokerage OANDA.

Johnson appears to be on a collision course with the 27 EU leaders over Brexit, and future EU Commission president Ursula von der Leyen noted that “there are many different and difficult issues to tackle together. We have challenging times ahead of us.”

While the EU signalled it wanted to work constructively with Johnson, it has also indicated that a deal reached by outgoing prime minister Theresa May and which British lawmakers have refused to approve, would not be renegotiated.

Meanwhile, the pound’s slump against other major currencies helped boost the London stock market and the gains held into the afternoon.

Asian stocks climb
Elsewhere, Asian stock markets had risen earlier in the day, tracking overnight gains on Wall Street.

As trading got underway in the US on Tuesday, the Dow Jones Industrial Average headed gently higher on a batch of mostly solid earnings reports and a budget agreement between congressional leaders and the White House.

That deal is expected to boost federal spending by $320 billion and suspend the government’s debt limit until after the next US presidential election.

Traders are now focusing on an upcoming Federal Reserve policy meeting at which the US central bank is expected to cut interest rates, with the main question being the size of the cut.

On oil markets, prices were essentially unchanged while traders kept tabs on the rumbling Iran crisis following its seizure of a UK-flagged tanker in the Gulf on Friday.

– Key figures around 1415 GMT –
Pound/dollar: DOWN at $1.2456 from $1.2476 at 2100 GMT

Pound/euro: DOWN at 89.62 pence from 89.85 pence

Euro/dollar: DOWN at $1.1157 from $1.1209

Dollar/yen: UP at 108.13 yen from 107.87 yen

London – FTSE 100: UP 0.7 percent at 7,565.06 points

Frankfurt – DAX 30: UP 1.7 percent at 12,501.01

Paris – CAC 40: UP 1.1 percent at 5,625.49

EURO STOXX 50: UP 1.3 percent at 3,536.01

Tokyo – Nikkei 225: UP 1.0 percent at 21,620.88 (close)

Hong Kong – Hang Seng: UP 0.3 percent at 28,466.48 (close)

Shanghai – Composite: UP 0.5 percent at 2,899.94 (close)

New York – Dow: UP 0.2 percent at 27,227.10

Brent North Sea crude: UNCHANGED at $63.22 per barrel

West Texas Intermediate: UNCHANGED at $56.25